Credit Reporting Agencies and Credit Scores

Credit card issuers rely extensively on FICO scores, issued by the Fair Isaac Corporation and on information from credit reports issued by one of three major credit reporting bureaus: Equifax, TransUnion or Experian. Two other credit reporting agencies, Vantage Score and Innovis, are less well known, but may also be used to determine creditworthiness. Information varies from one report to the next, and FICO scores can also vary from agency to agency. As a result, it’s a good idea to check each report before seeking personal credit cards or other forms of credit.

Consumers are entitled to one free credit report every 12 months from each of the three major credit reporting bureaus through annualcreditreport.com. Copies of Innovis credit reports can be ordered from its website. Consumers can also obtain free FICO scores from services like Credit Karma and Mint and free Vantage Scores from the credit.com website. Other sources may claim to provide free credit scores, but actually require consumers to purchase expensive credit monitoring services after a trial period.

Personal Credit Card Perks

Especially for consumers with good or excellent credit, the available perks associated with personal credit cards are endless. Cash back, 0 percent balance transfers, travel rewards and discounts on groceries, gas, and entertainment are all common perks. The key is to focus on those perks and features that pertain to those purchases that you already make on a regular basis while avoiding the trap of making purchases with a credit card simply to obtain points, credits or discounts.

“Churning” Personal Credit Cards

Consumers with excellent credit frequently engage in “churning” personal credit cards: obtaining credit cards with lucrative introductory offers, racking up as many perks as possible within a short period, then dumping the cards in favor of new personal credit cards. Churning credit cards requires financial discipline and meticulous record keeping avoiding missing deadlines or failing to meet other requirements. Credit card companies are also beginning to clamp down on churning by limiting introductory offers to consumers who have never held their particular cards. Churning can also knock down FICO scores, so it may be best to avoid doing so if you’re, say, shopping for a mortgage.

Personal Credit Card Fees

Many personal credit cards carry no annual fees – especially those requiring good or excellent credit. However, some so-called prestige cards carry extremely high annual fees. It’s up to you to determine if it’s worth several hundred dollars every year for the privilege of carrying a “black” or “plum” credit card. Other troublesome fees include penalty APRs for late payments or exceeding your credit limit – such fees are relatively easy to avoid for consumers with decent credit. Foreign transaction fees often apply not only to purchases made overseas but to purchases made in foreign currencies, even if you’ve never left the country. These fees are difficult, but not impossible to avoid.

Types of Consumer Credit Cards

When it comes to personal credit cards, consumers are spoiled for choice. The ultimate decision you make depends on your spending habits and of course, your credit profile.

Credit Cards: Personal credit cards represent a form of revolving credit. Cardholders may pay off their entire balances each month, or make installment payments that equal or exceed a set minimum monthly amount, but which also include interest, which increases the amount ultimately paid.

Charge Cards: Unlike credit cards, charge cards often feature no fixed credit limit, but require cardholders to pay off their balances in full every month. An iconic example of a charge card is the classic green American Express card. Some merchants also issue charge cards. Charge cards are always unsecured.

Unsecured Credit and Charge Cards: Unsecured credit and charge cards are issued almost solely on the basis of the credit profile and FICO score of the cardholder. Credit limits and APRs also vary based on cardholders’ creditworthiness. Unsecured cards may be issued by major credit card companies like Visa or MasterCard or by individual merchants such as Macy’s or Amazon.

Secured Credit Cards: Secured credit cards require borrowers to provide some or all of the funds to be applied to the available credit limit. However, for consumers with poor credit, secured credit cards frequently feature lower fees and APRs than unsecured cards. That’s because so-called subprime credit cards often carry small credit limits, high annual fees and additional costs, including administrative, application, credit limit increase fees. Responsible use of secured cards also allows cardholders to qualify for unsecured cards with better terms and higher credit limits in the future.

Credit Cards for Specific Consumer Groups: Students of all ages, active duty military personnel, veterans and their families often qualify for personal credit cards with favorable interest rates. Likewise, credit unions, professional organizations and affiliate groups frequently offer personal credit cards to members and customers. Such cards sometimes, but not always, feature more lenient credit underwriting requirements than credit cards for the general population.

What features do you consider deal breakers? (e.g. high annual fees, penalty APR, etc.)

Are you able to maintain meticulous records (for credit card churning)?

When a Personal Credit Card Isn’t a Credit Card

Debit cards and prepaid credit cards look like personal credit cards and operate much like credit cards. They offer the convenience of making online purchases or making purchases without carrying cash. However, like secured credit cards, purchases can only be made up to the amount deposited into the card account. On the other hand, debit cards and prepaid credit cards do not report transactions to consumer credit reporting agencies, so using them cannot affect your credit report or FICO score. Therefore they aren’t a good choice for consumers who wish to establish or repair their credit reports or boost their FICO scores.

Credit Reporting Agencies and Credit Scores

Credit card issuers rely extensively on FICO scores, issued by the Fair Isaac Corporation and on information from credit reports issued by one of three major credit reporting bureaus: Equifax, TransUnion or Experian. Two other credit reporting agencies, Vantage Score and Innovis, are less well known, but may also be used to determine creditworthiness. Information varies from one report to the next, and FICO scores can also vary from agency to agency. As a result, it’s a good idea to check each report before seeking personal credit cards or other forms of credit.

Consumers are entitled to one free credit report every 12 months from each of the three major credit reporting bureaus through annualcreditreport.com. Copies of Innovis credit reports can be ordered from its website. Consumers can also obtain free FICO scores from services like Credit Karma and Mint and free Vantage Scores from the credit.com website. Other sources may claim to provide free credit scores, but actually require consumers to purchase expensive credit monitoring services after a trial period.

Personal Credit Card Perks

Especially for consumers with good or excellent credit, the available perks associated with personal credit cards are endless. Cash back, 0 percent balance transfers, travel rewards and discounts on groceries, gas, and entertainment are all common perks. The key is to focus on those perks and features that pertain to those purchases that you already make on a regular basis while avoiding the trap of making purchases with a credit card simply to obtain points, credits or discounts.

“Churning” Personal Credit Cards

Consumers with excellent credit frequently engage in “churning” personal credit cards: obtaining credit cards with lucrative introductory offers, racking up as many perks as possible within a short period, then dumping the cards in favor of new personal credit cards. Churning credit cards requires financial discipline and meticulous record keeping avoiding missing deadlines or failing to meet other requirements. Credit card companies are also beginning to clamp down on churning by limiting introductory offers to consumers who have never held their particular cards. Churning can also knock down FICO scores, so it may be best to avoid doing so if you’re, say, shopping for a mortgage.

Personal Credit Card Fees

Many personal credit cards carry no annual fees – especially those requiring good or excellent credit. However, some so-called prestige cards carry extremely high annual fees. It’s up to you to determine if it’s worth several hundred dollars every year for the privilege of carrying a “black” or “plum” credit card. Other troublesome fees include penalty APRs for late payments or exceeding your credit limit – such fees are relatively easy to avoid for consumers with decent credit. Foreign transaction fees often apply not only to purchases made overseas but to purchases made in foreign currencies, even if you’ve never left the country. These fees are difficult, but not impossible to avoid.

Types of Consumer Credit Cards

When it comes to personal credit cards, consumers are spoiled for choice. The ultimate decision you make depends on your spending habits and of course, your credit profile.

Credit Cards: Personal credit cards represent a form of revolving credit. Cardholders may pay off their entire balances each month, or make installment payments that equal or exceed a set minimum monthly amount, but which also include interest, which increases the amount ultimately paid.

Charge Cards: Unlike credit cards, charge cards often feature no fixed credit limit, but require cardholders to pay off their balances in full every month. An iconic example of a charge card is the classic green American Express card. Some merchants also issue charge cards. Charge cards are always unsecured.

Unsecured Credit and Charge Cards: Unsecured credit and charge cards are issued almost solely on the basis of the credit profile and FICO score of the cardholder. Credit limits and APRs also vary based on cardholders’ creditworthiness. Unsecured cards may be issued by major credit card companies like Visa or MasterCard or by individual merchants such as Macy’s or Amazon.

Secured Credit Cards: Secured credit cards require borrowers to provide some or all of the funds to be applied to the available credit limit. However, for consumers with poor credit, secured credit cards frequently feature lower fees and APRs than unsecured cards. That’s because so-called subprime credit cards often carry small credit limits, high annual fees and additional costs, including administrative, application, credit limit increase fees. Responsible use of secured cards also allows cardholders to qualify for unsecured cards with better terms and higher credit limits in the future.

Credit Cards for Specific Consumer Groups: Students of all ages, active duty military personnel, veterans and their families often qualify for personal credit cards with favorable interest rates. Likewise, credit unions, professional organizations and affiliate groups frequently offer personal credit cards to members and customers. Such cards sometimes, but not always, feature more lenient credit underwriting requirements than credit cards for the general population.

What features do you consider deal breakers? (e.g. high annual fees, penalty APR, etc.)

Are you able to maintain meticulous records (for credit card churning)?

When a Personal Credit Card Isn’t a Credit Card

Debit cards and prepaid credit cards look like personal credit cards and operate much like credit cards. They offer the convenience of making online purchases or making purchases without carrying cash. However, like secured credit cards, purchases can only be made up to the amount deposited into the card account. On the other hand, debit cards and prepaid credit cards do not report transactions to consumer credit reporting agencies, so using them cannot affect your credit report or FICO score. Therefore they aren’t a good choice for consumers who wish to establish or repair their credit reports or boost their FICO scores.

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